Sri Lanka Financial System Remains Stable Despite Global Risks: Central Bank

COLOMBO, Oct 12 (Bernama-Xinhua) -- Sri Lanka's financial system remains stable despite heightened global risks, while banking sector credit grew 23.6 per cent year-on-year in the second quarter of 2026, up from 11.4 per cent a year earlier amid strong private sector demand, the Central Bank of Sri Lanka said on Monday, reported Xinhua.

In its Financial Stability Review 2026, the central bank said the financial system remained stable during the first half of the year, supported by continued economic recovery, improved fiscal performance and adequate capital and liquidity buffers across banks and finance companies.

However, the bank warned that rapid credit growth, particularly household lending including vehicle financing and gold-backed lending, was creating potential systemic vulnerabilities. Rising household indebtedness, higher real estate prices and volatility in collateral values were also identified as emerging risks.

Household credit grew 25.4 per cent year-on-year in the second quarter, compared with 14.8 per cent a year earlier. Banks remained the main source of household financing, accounting for 62.5 per cent of such credit.

Credit extended by finance companies expanded 45 per cent year-on-year in the second quarter, driven largely by vehicle and gold-backed lending, compared with growth of 35.1 per cent in the same period of 2025.

The central bank said geopolitical tensions, elevated energy and commodity prices, tighter global financial conditions and climate-related risks could spill over into the domestic economy through trade, tourism, remittances, capital flows and exchange rate movements.

The outlook for financial stability remains broadly positive, provided the economic recovery continues, fiscal consolidation progresses and prudent policies are maintained, the central bank said.

--BERNAMA-XINHUA